Gold remains a universally acknowledged safe haven for investors during times of rising geopolitical tension, and recent research suggests now could be the time to invest.
“At times of safe-haven demand, gold can break out, seen in mid-2020 with the Covid pandemic, and in early 2022 with Russia-Ukraine tensions,” Morgan Stanley (NYSE:MS) analysts said in a research note on Thursday.
“This appears to be the case currently, too, as gold prices have risen by 10% from recent lows as geopolitical tensions are on the rise.”
Commodity strategist Amy Gower predicts that gold prices “could hold up” from here onwards if real yields peak and geopolitical risks such as the ongoing conflict in Gaza persist.
Gold prices plummeted at the start of last month, before rallying by 10% from recent lows but remaining broadly in line with the last three months of trading.
Gold prices fell to US$1,820 per ounce (oz) five days into October as US ten-year real yields reached their highest level since the global financial crisis but rebounded to their highest level since May at US$2,000/oz by the month’s end.
Gold as a commodity comes under pressure when real yields rise because gold itself is not a yielding asset, meaning its price is based on market value instead of underlying resource creation or repayments on debt.
In times of rising interest rates, investors often pile into bonds because of the higher yields available from pricier coupon rates on newly issued bonds that reflect a higher base rate of interest, and commodities can lose out.
Yet the received wisdom is that gold really comes into its own as a potential “safe haven” for investors in times of uncertainty.
Morgan Stanley (NYSE:MS) analysts said on Thursday that European gold equities have underperformed gold prices by about 20% in the past three months, which they suggested presents “an opportunity to gain exposure to the sector”.
Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) is the bank’s preferred stock pick, according to Thursday’s research note.
The bank's analysts rate the company as ‘overweight’, saying Endeavour has underperformed its commodity basket by 20% in the past three months in large part due to “perceived risk” around its operations in Western Africa following July’s coup in Niger.
Analysts say the company’s shares are trading at an 18% discount to the spot price of gold, estimating a 6% upside to its 2024 earnings consensus estimates.
The company is awaiting approval to drill for gold at the Tanda-Iguela site in Côte d'Ivoire, which analysts suggest could “trigger a re-rating", as could the first production from its expansion of Sabodala Massawa and the Lafigué project.
Fresnillo PLC (LSE:FRES), which is trading at a 9% discount, representing a fair valuation but with no growth in volume on the cards analysts have kept it at equal weighting.